Democrats Approve Short-Term $290 Billion Increase In U.S. Debt Ceiling Limit To $12.4 Trillion

From Dow Jones:

WASHINGTON (Dow Jones)–The U.S. House of Representatives on Wednesday approved a short-term $290 billion extension in the nation’s debt ceiling, delaying a decision until February about a larger increase in the borrowing cap.

The vote comes less than a week after House Majority Leader Steny Hoyer (D., Md.) said he intended to seek a $1.8 trillion increase in the ceiling to support federal government borrowing through 2010.

A decision was made to seek the more modest increase after it became clear the larger increase may have failed to win support in the Senate.

The Senate must still take up the two month increase, which it is expected to do next week.

House lawmakers voted by a razor thing margin of 218-214 to pass the borrowing increase. On most major pieces of legislation, 218 votes are required for approval in the House.

Not a single Republican lawmaker voted to support the hike. They argued that increasing the debt ceiling was giving the Democratic majority and the Obama administration a license to spend more money.

The increase in the debt limit raises the total debt the federal government can hold to $12.394 billion from $12.104 billion.

Treasury officials have warned the current cap will shortly be hit, requiring the ceiling to be increased.

Increasing the debt ceiling is largely symbolic as the public debt is the accumulation of past deficits, or money already spent.

But were the U.S. to breach its debt limit, it would default on its obligations, potentially lose its prized top-shelf credit rating and have to pay significantly higher interest to its creditors

Such a scenario, albeit an extremely unlikely one, would have tremendous ramifications for the wider financial markets.

The federal budget deficit reached historic levels of $1.4 trillion in fiscal 2009. Through the first two months of fiscal 2010, the government is on pace to surpass that level.